After years of studying hard to get your degree, you rightfully
deserve to treat yourself. Like most recent grads, a new vehicle is the
first major purchase you will make. With so many models and options to choose
from, buying a new car can be an exciting yet complex process.
You will need to ask yourself several questions before you take
ownership of your new vehicle:
- Will you purchase or lease?
- Should you buy new or used?
- What is the optimal time frame for a lease or finance agreement
2, 3, 5, or 7 years?
- How much money should you put down on a purchase or a lease?
- How much extra money will it cost to insure a new sports car
compared to a subcompact vehicle?
As you already know, purchasing a vehicle requires a lot of thought. This
section is intended to assist you in making a wiser decision when buying
Starting Point Terms
"Upside Down"- Negative Equity
Avoid being "upside down" or having negative
equity in your vehicle. Negative equity simply means owing more for a
vehicle than it is worth. Many consumers are opting to stretch their car
financing out as far as 7 years to lower their monthly payments. Unfortunately
if you try to trade a financed vehicle in too early, the vehicle's payoff
amount will be more than what the vehicle is worth. In this case, the
dealership will include the difference between the trade in value and
your payoff amount onto your new vehicle. Consequently, if you had $3,000
in negative equity you would have to add that amount on top of the selling
price of your new car, which means you will more than likely be upside
down when you try to trade in for yet another vehicle. To avoid being
upside avoid long-term contracts or opt for short-term leases, which will
lower your monthly payments.
When considering to buy a vehicle it is only natural to think about affordability.
The vehicle's (MSRP) or manufacture's suggested retail price is the first
place many people start when considering cost. The MSRP is a calculated
price that the automaker says the vehicle is worth; however, this price
is not normally the amount you will actually pay. Unless you are trying
to buy a vehicle that is a new entry or in hot demand, you will usually
pay less than MSRP.
A vehicle's invoice price is the price the dealer paid the manufacturer
for the vehicle. However, remember the dealership's goal is to sell vehicles
for a profit; therefore, you will have to negotiate on a price somewhere
usually between MSRP and invoice that will satisfy both parties.
Actual Selling Price
In most cases the actual selling price is somewhere between MSRP and
invoice prices. Like any other business transaction, the final price you
pay should satisfy both parties.
APR or Annual Percentage Rate is the fixed amount of interest you will
pay for borrowing money from your finance source to take possession of
Rebates are discount monies given directly from the manufacturer, used
to entice more people to buy particular vehicle lines. Customer Cash is
a direct discount to you, the consumer, to use towards a down payment
or to fight against negative equity. For example, if there is $500 customer
cash on a vehicle you are interested in, then you are entitled to subtract
$500 off the final negotiated price. Special discounts such as, the college
graduate program, are rebates certain customers are entitled to for meeting
specific criteria like recently graduating from college. Make sure you
ask the dealership about all applicable rebates.
Your Beacon score is the rating credit agencies assign based on your
credit history. Simply, the higher your Beacon score, the lower your financing
cost will be due to the lender's lower perceived default risk.
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